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Denver affordable housing efforts face uncertainty after council vote

The Spire, a 42-story condo tower, was built five years ago, and has no affordable units. (Jamie Cotten, Special to The Denver Post)

An affordable housing proposal aimed at producing more condos for Denver's middle class will face plenty of uncertainty even after its likely approval this week by the City Council. Though Mayor Michael Hancock backs the measure, which is meant to strengthen a 2002 ordinance that many see as failing, city leaders admit it won't have much effect immediately.

Before any new units could be set aside for marked-down prices, developers first must resume building large condo projects. And in recent years, they've favored apartment projects, in part because of legal factors that make building condos more costly and risky.

And then there's the question of the relatively small potential that would exist in the revamped Inclusionary Housing Ordinance anyway.

State law prevents its basic requirement — that developers of projects with at least 30 units set aside 10 percent of them for income-qualified buyers — from applying to rental housing.

Developers, city officials and affordable housing advocates agree that expanding Denver's stock of apartments and other rentals holds far more promise for helping low-income people to afford living in the city. Increasingly pricey Denver faces a shortage of more than 30,000 affordable homes, according to a market analysis performed for the city.

New kinds of subsidies or loans could reduce that number, but such efforts are in the early stages. They also lack sufficient funding, advocates say.

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The dearth of condo projects and subsidy issues have swirled around the council's debate of the Inclusionary Housing Ordinance rewrite.

Last week, its members gave initial approval to Councilwoman Robin Kniech's proposed changes 7-6. A slim victory is likely Monday night, barring major amendments.

Developers of The Spire paid $3 million rather than include dozens of affordable units. (Jamie Cotten, Special to The Denver Post,)

Like some of her colleagues, Kniech sees buttressing the law as only the first step.

The public "just want us to do something bigger, and more," Kniech said in her office last week.

After a summer of contentious meetings
, she sees a new openness on the local level to talking about ways to address the need for more affordable housing. "We've changed the debate," she said.

Her proposed changes to the condo ordinance, effective Dec. 1, are aimed at sharply increasing the city's per-unit subsidies for affordable units in new projects to as high as $25,000 in the city's most expensive areas. City regulators would get the authority to make changes to various rules based on their effectiveness.

The changes also include making it much more costly for developers to opt out of providing those marked-down units, as several large projects have done, with some paying the city millions of dollars, since 2002.

They'd also get a shot at creative alternatives to meet the affordability requirements.

Kniech's proposal has faced opposition from some developers and the Downtown Denver Partnership, who are opposed to the idea behind the ordinance for fear it will make condo development harder. It's gotten friction even from some likely allies, who simply disagree about the scope of the changes.

Risk in condos

But many on all sides of the debate agree a state law that has seen consumer-oriented changes in the last decade is holding condo development back.

Since the recession's end, developers have erected a wave of new apartments, but some refuse to venture back into the condo market. They cite the state construction defects law, saying it makes those developments too costly to insure and legally risky.

The law allows homeowners associations to file expensive lawsuits over defects in their condos, and the industry says the resulting litigiousness makes finding insurance costly or even impossible.

In metro Denver, condos make up 2 percent of new residential developments, according to industry estimates. In other cities nationally, it's closer to 20 percent.

"We're not building condos," said David Zucker, principal and co-founder of Zocalo Community Development, which built affordable condos in Denver as part of three earlier projects; it now focuses on apartments. "I won't build condos unless there are substantial changes."

State Sen. Jessie Ulibarri, D-Westminster, this year carried bills aimed at pushing more condo construction disputes into arbitration and lowering insurance premiums.

But the majority Democrats, concerned about weakening a significant consumer protection, halted them. The fight likely will resume next year.

The confluence of that issue with affordable housing has made for strange bedfellows, joining together developers, conservatives, big city mayors including Hancock and housing advocates.

"To see the lack of production of the for-sale condo market has been more than enough evidence to prove to us that this is a problem that we have to move expeditiously to solve at the state level," Hancock told a luncheon hosted this month by the Denver Metro Chamber of Commerce.

Fund proposed

While city leaders look to the legislature for help, they're also working on other affordable housing fronts that have been bearing fruit slowly.

Another pending proposal, favored by Kniech and some of her council colleagues, would create an affordable housing fund to provide loans for private apartment projects to offer units at affordable rents for low-income people. It would offset the gap between two tiers of housing credits provided by the state, making the lower level more attractive.

The city is starting the fund with $8 million, including $3 million that Hancock set aside for housing in this year's budget. Another $2 million would come from opt-out fees paid by condo developers in recent years to escape affordability rules.

But some council members and developers who like the idea, including Zocalo, say it's just a start — and well short of affordable housing initiatives in other cities. In Seattle, voters have approved taxes raising millions more on a yearly basis.

In Denver, the mayor's office says it's planning to commit more money next year, but it can't yet promise an annual funding infusion for new loans.

"I think we need to get this pilot up and running, and hopefully it's successful," said John Lucero, deputy director of the city's Office of Economic Development. "And then it's going to be easier to find partners to provide money" to supplement city funding in the future.

The city next month plans to release a five-year affordable housing plan intended to marshal efforts at several levels.

As the city's efforts unfold, Savarra Sullivan, 26, is among Denver residents hoping they make inroads.

She lives in an affordable apartment in Whittier with her twin 4-year-old daughters but hopes to own her own home in five or six years, perhaps a condo.

"Of course, it's hard to lower the market rate at this point," said Sullivan, a preschool teacher and a volunteer leader for FRESC, a community organizing group. "But if it could at least be affordable," she would have a hope of staying in Denver. "It's so out of reach for so many people."

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